TEXT-Fitch: utilities outlook negative across much of Europe

Thu Dec 13, 2012 10:01am EST

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Link to Fitch Ratings' Report: 2013 Outlook: European UtilitiesDec 13 - Structural changes in electricity generation, a downturn in demand
and the risk of political interference all contribute to a negative outlook for
much of the European utilities sector in 2013, Fitch Ratings says.

These factors are making cash flows less predictable, damaging a key advantage
that had allowed the sector to support higher leverage than most other
industries. In some instances, together with limitations on how high a domestic
corporate can be rated above a sovereign, this has resulted in a negative
utilities outlook in Germany, Italy, and Iberia.

Generators with a bias towards thermal technologies such as coal and gas are
most at risk, especially if they operate in countries like Germany, Italy or
Spain, where there has been a strong push towards renewable energy. Operators
that are locked into uneconomic fuel contracts and those in countries with the
weakest economies (leading to a downturn in demand for electricity and gas) are
also at risk.

The weak consumer environment and pressure on governments to limit rising
utility bills has also increased the danger of regulatory changes or political
interference, which could lead to ratings downgrades. Spain is a clear example -
regulatory measures including a new tax introduced to eliminate the tariff
deficit mean the negative outlook is likely to persist for the medium term.

The other regions within Europe all have a stable outlook. This reflects greater
financial headroom among central European generators, less structural pressure
on operators in France and the CIS and more supportive policy proposals for
electricity generation in the UK.

For more information on our outlook for the sector, please see "2013 Outlook:
European Utilities" published today on www.fitchratings.com.


The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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